The Federal Reserve Board’s decision yesterday was highly anticipated—but the language remained unchanged. The Fed indicated that it will not raise federal overnight lending rates (aka “fed funds rate") for a “considerable time”—sticking to the formula that served well in months prior.
Still, some changes are coming. The committee clearly has to take the improving economy into consideration. Next year, the rates are forecasted to move higher: the median estimate is 1.375 percent at the end of 2015. Overnight lending rates will reach 3.75 percent two years later, in late 2017, the Fed estimated. Still, the Fed remains flexible—and, indeed, wants to be seen as flexible as not to spook investors. Read more about Good News from the Fed
After falling for six straight trading sessions, U.S. Treasuries stayed up for most of the day today as the markets express some concern over the slipping economic conditions in Europe, slower growth in Asia, and the Islamic State terrorists in Iraq and Syria.
Meanwhile, as was reported by Bloomberg, PIMCO Total Return (PTTDX) manager Bill Gross has capitalized on the recent rally in U.S. government securities, having cut the fund’s investments in Treasuries and government-related debt in August.
The fund, recommended in our Fund Portfolio, reduced its U.S. government holdings to $222 billion, 41 percent of assets, down from 45 percent in July, according to new data. (PIMCO includes in those figures U.S. Treasury notes, bonds, agency debt, interest-rate swaps and inflation-protected securities.) Overall, the fund’s level of U.S. government debt had peaked at 50 percent in May, when it reached its highest level since May 2010. Read more about PIMCO and CBO Projections 09-11-14
Global Easing in Effect
Just when you think there’s no room to go lower, they do it again. Today, the European Central Bank announced yet another cut in interest rates: all three main rates were cut by 10 basis points. And while it looks like somewhat of a symbolic gesture—the rates are already at record-low levels—the costs of borrowing will decrease further (the main interest rate, the ECB refinancing rate, now stands at 0.05 percent), and the costs to banks for not using money, a penalty now imposed for parking money at the central bank, first instituted in June, is now 0.2 percent. That’s minus 0.2 percent. Money in Eurozone truly is cheap. Read more about Print, Baby, Print 09-04-14
The U.S. economy today at last showed itself solidly on the mend when the U.S. Dept. of Commerce announced a second quarter rise in gross domestic product (GDP) at 4.2 percent annualized (better than economists had predicted), a good recovery after a first quarter of shrinkage. Business investment also gained the most in more than two years.
The increases might lead some to believe the Federal Reserve Board will slow or halt its dovish monetary policies after it winds down the current quantitative easing program in October. Read more about Tug of War 08-28-14
In this issue we review a couple of recommendations facing near-term headwinds but still remain strong long-term bets. We also discuss corporate actions initiated by our recommendations. One of our utilities has sold some of its assets, which now trades separately as a yieldco. Moreover, one of our recommended pharmaceutical companies made a big splash and acquired a small biotech to foray into a lucrative market.
We also examine what current interest rate trends is saying about the economy and whether another recession may be in our future, how to play in the current low market volatility, and much more. Read on... Read more about A Fresh Start